Integrated flow of transactional

data into SAP Material Ledger

This chapter walks you through a complete manufacturing process from the

purchase of raw materials to sales, including the material ledger,

accounting, and COPA documents for each goods movement. It also

highlights important things to watch out for throughout the month in order

to minimize issues during the actual costing closing at month end.

The following data and examples used in this chapter are for illustration purposes

only. Examples and data may not represent the correct proportion of materials

and dollar amounts as compared to a real scenario in your company.

You will find detailed explanations to how these business transactions flow to a

material ledger, the impact in the G/L, and valuation in the context of product

costing using standard and actual costing functions.

Keep in mind that before you initiate any material movement transactions in SAP,

you need to make sure you have calculated and released a standard cost for each

material with valuation, regardless of its type, i.e. finished goods, semifinished

goods, raw materials, etc.

4.1 Standard cost set-up and cost roll-up process

This section briefly explains the concept of cost roll-up. This process is not

covered in detail as the book’s main focus is the actual costing process with

material ledger.

It is important to calculate and release a standard cost for each material relevant

for valuation before any material movement transactions. This will ensure you

have the appropriate cost component breakdown to be used in further analysis

and comparison between plan and actuals.

The cost roll-up includes the cost of goods manufactured of all materials in a

multilevel production structure within the costs of the material located at the top of

the structure. The costs are automatically rolled up using the costing levels,

starting from the lowest level and then carrying results over to next highest costing

level where the cost is calculated for all materials.

The process continues until it reaches the costing results of the highest material in
the bill of material and the finished product cost of goods manufactured contains

the cost of each material on the BOM, including its own BOM and lower levels.

Costing results are passed on to the costing of each next level of a product and

assigned to the applicable cost component according to the cost component

structure.

For the purpose of the cost component split, it is important to define the cost

component structure and design the cost splitting structure in a way that provides

costing information in the level of detail that your company needs.

View Figure 4.1 through Figure 4.5 to see the results of the standard cost of the

product to be used in your business scenario transactions in this chapter. The

standard costing in the group valuation view (Figure 4.3) has been defined as

group currency for simplicity. However, you can define specific price conditions for

mark-up and/or mark-down to be used along with the purchase info records to

meet your own needs.

For further information on the standard cost master data and configuration

settings, please refer to Espresso Tutorials book Practical Guide to SAP CO-PC

(Product Cost Controlling)—http://www.espressotutorials.

com/Controlling_S0064.php

Figure 4.1 shows the standard costing results for a finished product. The value of

$75.63 will be used during the month to value any material movement transaction.

Variances to standard are captured separately in specific G/L accounts as well as

in the material ledger (shown in later sections).

Figure 4.1: Cost estimate—summary view

In Figure 4.2 you can see a different format of CK11N to review the standard

costing results.

The view displays the standard cost-by-cost component. It is important to ensure

the standard cost component split is done as it will be used to value the material

movement transactions, including the cost of goods sold. The cost component

split flows to COPA, which will allow you to review your cost of sales using the

cost component breakdown. This is a great functionality that provides detailed

information in COPA, which can be a good help to support your company when
analyzing and reporting cost of goods sold, profitability, or gross margin in COPA.

You can choose to report your cost of goods sold by nature of expenses or total,

as well as profitability by product or any other characteristics available in COPA.

Figure 4.2: Cost component view

Figure 4.3 shows the standard costing results in group valuation view.

Figure 4.3: Group valuation view

Once the standard cost is released, the results are stored in the material master,

as shown in Figure 4.4. There is a specific bucket for each cost by currency type

in the ACCOUNTING 1 view. The actual cost results that will be calculated at month

end are also stored in the material master in the periodic unit price (PER. UNIT

PRICE) field. This will be explained in detail later in Section 6.3.

Figure 4.4: MM03—Current standard costing results—accounting 1 view

Figure 4.5 shows the current costing run results and specific details such as when

the standard cost was released, period, year, valuation variant, costing version,

and the standard cost itself.

Figure 4.5: MM03—Current costing run results view

4.2 Purchase of raw material

This section reviews a purchase of a raw material with a purchase price variance.

Figure 4.6 displays the results of a good receipt of a raw material purchased in the

material ledger—transaction CKM3N. The standard cost for the item is $1.00 and

the purchase price is $1.50. Therefore, there is a $0.50 price difference per unit,

which results in $15.00 of purchase price difference with 30 units.

The valuation at standard price is updated as a preliminary valuation in the

material ledger. The purchase price difference is captured in a separate column

and whenever there is an exchange rate difference, this can be also captured

separately from the PPV.

The estimated actual cost at a material throughout the month is available as a

statistical price, in this example, $1.50. This is a statistical actual cost at a certain

point in time; it does not represent the final actual costs for the month as there

could be additional variances received before month end. In this case, for

example, there could be a receipt of an invoice with additional price differences for
raw materials. For a semifinished or finished product, the periodic actual cost is

only known after the actual costing calculation where the actual cost roll-up takes

place and updates the price differences from lower-level materials. The material

ledger month-end process is covered in Section 5.4.

Figure 4.6: Material price analysis—purchased material

If you want to display all receipts for this material, you can expand the RECEIPTS

category (see Figure 4.7) and that will show all transactions categorized as

receipts for this material. Invoice receipts generally fall under the receipts

category.

Figure 4.7: CKM3N—Goods receipt document

Drilldown functionality is available in CKM3, so you can double click on the

transaction that you want to review and the system displays the material ledger

document screen (Figure 4.8).

Figure 4.8: Display of a material ledger document

From the material ledger document, you can display accounting documents, the

source document, additional details on material ledger document, or simply return

to the material price analysis. The material ledger document contains other

additional details on the material ledger update.

Next is a review of the accounting documents (see Figure 4.9).

When you click the ACCOUNTING DOCUMENT, as shown in Figure 4.8 the screen

below (Figure 4.9) will pop up and you can double click on the ACCOUNTING

DOCUMENT NUMBER to view details of the accounting entries, as shown in Figure

4.10.

Figure 4.9: List of documents in accounting

As you can see in Figure 4.10, the price difference of $15.00 has been posted to

the purchase price variance account (same amount in CKM3N).

Figure 4.10: Accounting document for raw material goods receipt

4.3 Manufacturing process using product cost by order

Next is a review of the manufacturing process using a production order and how it

updates to the material ledger upon material movement transactions against a

production order.
Figure 4.11 shows the consumption of a raw material to the production order

60003765. Each material movement transaction is recorded in the material ledger

and can be displayed using CKM3N.

All material movement transactions are valued at standard cost, as you can see in

Figure 4.11. Although, this raw material has been bought for $1.50, the standard

cost is $1.00, which is the cost updated to the production order. The variances to

standard cost are captured in the material ledger and will be allocated to the

relevant products at month end during the actual costing closing. Details are

found in Section 5.4.

Figure 4.11: CKM3N—Consumption of raw material to production order

Figure 4.12 shows production order 60003765 with all consumptions (identified as

GOODS ISSUES) and internal activities (identified by CONFIRMATIONS) and delivery to

stock of the finished product (identified by GOODS RECEIPT).

It is important to note that the TOTAL ACTUAL COST column represents actual

quantities valued at standard cost, even though the production orders can be

revalued at actual cost rates at month end. For this example, there is no revaluing

of the orders as shown in the configuration step in Section 3.12.1.

Therefore, the production orders remain valued at standard cost and the products

produced in a month are updated to actuals in the material ledger. You do not lose

visibility of the information as an actual material quantity structure is available

where you can see the valuation for all different levels of the actual BOM and the

variance received from lower levels can be easily obtained. Refer to Section 6.6.2

for more detail on the actual bill of material report.

Figure 4.12: Production order cost analysis

The production order functionality does not change with the use of a material

ledger. In the example shown in Figure 4.12, the balance on the order is $54.75

and the order has been completely delivered. Therefore, the balance is a

manufacturing variance.

Orders are usually debited with the costs during consumption of materials and

confirmation of activity type. When a product is delivered to inventory, the orders

are credited. The remaining balance is a variance if the orders are fully delivered.
If the order has a balance and it is still not complete, then the order will be

considered as work-in-process (WIP), which is described through the month-end

closing steps in Section 5.3.1.

4.4 Sales of finished product

This section contains a sales process example.

The sales process in SAP consists of a few different activities, such as quotation,

sales order processing, shipping, and invoicing.

In this section, the focus is on the shipping and invoicing steps.

Typically, the sales order has the condition records for cost, revenue, freight, etc.,

that are mapped to value fields in COPA and which will be updated when the

invoicing process is completed.

At the time of a goods issue that occurs during the shipping process, inventory,

material ledger, and the G/L are updated.

Similar to other scenarios discussed in this chapter, cost of goods sold are booked

at standard cost throughout the month and revalued at actual at month end.

Figure 4.13 shows CKM3N, a goods issue of a finished product to a sales order.

Figure 4.13: CKM3N—Goods issue for a sales order

If you double click on the MATERIAL LEDGER DOCUMENT and then go to ACCOUNTING

DOCUMENT (Figure 4.14) you will see details of the accounting entries.

Figure 4.14: Accounting document for cost of goods sold

Note that for cost-based COPA, the COGS amount will get posted only at time of

billing, not at the time of a goods issue. See Section 4.5 for further details.

4.5 Flow of sales data into COPA

As you have activated COPA to be updated at standard and actual costs, the

goods issue of a product does not flow to COPA at the same time the accounting

document and inventory are updated. The updates into COPA take place later

when the billing document is created and posted. Therefore, both revenue and

cost of goods sold are updated into COPA at the same time.

FI and COPA will not balance until the billing document is processed. It is

important to reconcile FI and COPA to ensure there are no imbalances due to

incomplete billing documents. Whenever there is a delivery where the revenue

accruals of the revenue in both the G/L and COPA, so that there is no mismatch

between the two modules. COPA is typically used to report gross margin by line of

business, product hierarchy, customer, etc., therefore it should have accurate

information.

Figure 4.15 displays the billing document for the shipment done in the prior step.

From the billing document (transaction VF03), you can navigate through the

accounting document, special ledger, controlling, and profitability analysis

(COPA).

Double click on the PROFITAB. ANALYSIS document to review COPA entries, as

shown in Figure 4.15.

Figure 4.15: List of Documents in Accounting from billing document

Figure 4.16 shows the line item document in COPA (transaction KE24). In KE24,

you can change the layout and add any desired fields. If you want to review the

characteristics or value fields of a particular document, you can double click on

the document number

Figure 4.16: Actual line item document in COPA

Figure 4.17 contains value fields updated from the sales document. As you can

see, revenue and cost of goods sold are now updated into COPA. The cost of

sales by cost component is available in both legal and group valuation views as

per your configuration settings.

Figure 4.17: Value fields display in a COPA document

From KE24, you can navigate through other transactions if you need to check any

information while analyzing COPA entries. To do so, click on the INTEGRATION

function, as shown in Figure 4.17, and a new screen (Figure 4.18) will pop up

where you can choose from the different options available such as display

customer master, billing documents, etc.

Figure 4.18: Integration function in KE24